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Written by: Susannah Streeter | Hargreaves Lansdow
- Krispy Kreme’s shares fall 6% but then rebound sharply after disappointing second quarter earnings.
- The donut company shares has been subject to a meme stock frenzy which erupted a fortnight ago.
- Kohls, Go Pro, Wendy’s and Palantir have also subject to intense speculation but Palantir has much stronger credentials.
- Investors should try and resist FOMO temptation and keep their eye on long-term horizons.
Krispy Kreme has been one of the darlings of the meme stock crowd and it’s still the centre of volatility. Its shares dropped sharply when trading began after results showed losses deepening, but they’ve reversed into positive territory with supporters once again appearing to pile into the stock. In late July, shares in the donut chain soared by more than 32% in a matter of hours amid trading volume surges as chatter reverberated on platforms. The shorting of the stock appeared to have sparked retaliatory action by swarms of individual investors determined to support the brand.
It's among a number of companies including Retailer Kohl’s, camera firm GoPro and burger chain Wendy’s which saw shares surged as armies of investors mobilised in chat rooms. As others joined in, fearful of missing out on gains, these firms saw spikes in value. But the problem is nostalgia alone won’t sustain the frenzy.
Krispy Kreme initially came back down to earth with a bump earlier after its second quarter earnings came in worse than analysts expected. The company has written down the value of multiple business units, its losses have mounted up and revenues are sliding. A turnaround plan is underway, after the termination of its contract with McDonalds, but there’s a long road ahead to sustained recovery. It’ll also have to deal with changing consumer tastes as weight loss drugs take off around the world and appetite for sweet treats wanes. Nevertheless, it’s still attracting speculation, with the share price remaining highly volatile swinging between gains and losses in seconds.
Even stark losses are not enough to trample on the meme stock trend. The force is strong among investors rebels in the social media world and other companies are likely to become targets. The collision between chat rooms speculation, anti-establishment views, and the ease of placing trades on digital platforms sets the scene for fresh waves of protest ahead.
Among the kids on the retail darling block is Palantir, which has benefited from the frenetic demand for all things AI. The data analytics firm has caused huge excitement after breaking through the $1 billion quarterly revenue mark and winning a multi-year contract with the US Army. But its forward price to earnings ratio has soared to 242, compared to Nvidia’s at 35, leading to concerns that it has headed into wildly overvalued territory. However, it still has stronger fundamentals than other companies whipped up into a meme stock frenzy. Its generating $1bn revenue a quarter, is profitable and has really strong growth credentials, so is arguably not a meme stock, although its valuation has become frothy.
Almost in the shadows of the rise of meme stocks are far more positive and demographically important permanent shifts: the average age of people investing for the first time is falling and there is an unstoppable shift to digital trading, opening up the financial markets to new retail investors, which is an encouraging trend. But it’s vital that they are listening to regulated bodies, or at the very least altruistic industry experts with years in the industry, rather than influencers targeting a quick buck
For longer-term financial resilience short term speculative decisions are never a wise move. Instead, investment decisions should be focused on a long-term plan. So, when you are investing it’s really important to ignore FOMO pressure and resist chasing after hot stocks. After all, if there’s a stampede of investors going after one particular investment, then they’re probably buying it at a price higher than it is worth.
If you are trading on the go, you need to be sure you’re giving each trade as much consideration as you would if you were sitting in a quiet place at home, so that you are not swept up in any hype and you take the time to fully analyse the fundamentals of any trade. Investing will always present a certain level of risk however if you diversify your investments, you can spread and reduce that risk significantly and stand a chance of making much greater returns than if you had left your money in an account paying minimal interest.
Related: Mad Libs for Market Mania: Decode the Meme Stock Frenzy One Blank at a Time